Lincoln Financial Distributors has set its sights on beefing up its distribution of variable annuities through registered investment advisors (RIAs). The goal is for the RIA channel to represent 10-15 percent of the firm’s total variable annuity business.
That’s a head-turner, considering that many variable annuity marketers have continued to curb variable annuity sales or at least curtail expansion as they wait out the prolonged low interest rate environment and associated de-risking.
Also, RIAs are known to have a strong independent streak, in the sense that they prefer to seek out markets rather than be sought. Some are flat-out anti-annuity, so winning them over could take some time.
But Lincoln executive Del Campbell believes the company has what many RIAs want — customizable products designed for the RIA business model and the RIA customer base, plus annuity training and support for those who need it. For Lincoln, the time is right.
RIAs have become the country’s fastest-growing distribution channel, Campbell told AnnuityNews. That is one of the reasons Lincoln wants to distribute products through RIAs.
Actually, Lincoln began contracting with RIAs about two years ago, Campbell said. But now the company wants to step that up.
“We work with all channels,” noted Campbell, who is head of investment products and expansion. This includes long-standing relationships with wirehouses, banks, broker/dealers, independents, managing general agents and planners.
But RIAs are the newest channel, so the firm wants to bring more of them onboard than it has up to this point.
Campbell added that the company has tweaked two of its variable annuity products to fit the RIA business model. The products for all channels share the same core features, he said. But Lincoln does adjust them to fit the unique channel requirements.
Growth in numbers and assets
Various researchers have found that RIAs are growing not only in numbers but in assets under management (AUM). This is so whether the RIAs are federally registered or state registered.
RIAs must be federally registered with the Securities and Exchange Commission (SEC) if their regulatory AUM totals $100 million or more. Smaller RIAs must register with their state securities department.
The growth is significant, given that the RIA and dually registered channels are the only channels that have experienced increases in advisor headcount in recent years, according to a recent study from Cerulli Associates.
The federally-registered RIAs increased their ranks by 3.4 percent in 2014 from the year before, according to a joint report from the Investment Adviser Association (IAA) and National Regulatory Services (NRS). The increase was from 10,533 in April 2013 to 10,895 in April 2014.
That might not seem like a very big number for RIAs across the nation. But RIAs are counted as firms, not individuals. Their client-facing representatives, who provide advice on securities, are called investment advisor representatives. And they produce substantial business. For example, the “regulatory AUM” for SEC-registered investment advisors had increased to $61.7 trillion as of April 7, 2014, with 52 percent of it managed by the top 1 percent of these RIAs, the IIA-NRS study said. This AUM was up by 12.6 percent from $54.8 trillion the year before.
By comparison, in September 2010, SEC-registered advisors managed in the neighborhood of $38 trillion, according to a 2011 SEC report.
When adding the state-registered RIAs to the headcount, the RIA numbers nearly triple. Various researchers and databases have estimated the total for all RIAs (federal and state) at 30,000 to 33,000 — and counting.
The 2011 SEC report pegged the state-registered RIAs at 15,000 in 2011, and the ranks of state-registered investment advisor representatives at 275,000.
Viewed from federal or state perspectives, the market is percolating.
One potential hurdle for insurers that want to work with RIAs has to do with prior experience. RIAs tend to enter the business from varied backgrounds, including broker/dealers, accounting, law and more, according to Cerulli’s studies on the RIA growth trends.
Some do come from insurance, thus reducing the conversational and comprehension barriers that insurers may face. But RIAs that hail from other fields may require training and education on insurance, and, in Lincoln’s case, on variable annuities.
Campbell said his firm is prepared to provide the training and education RIAs may need on annuities. This will be done through wholesalers, seminars, website information and access to the company’s advanced planning group. “It wouldn’t make sense not to,” he said.
In addition, the annuities the company will sell through the RIA channel were “designed for RIA distribution”— that is, they are the company’s core products but they are tailored to fit the RIA business model.
The two products are: Lincoln InvestorSolutions, a full-featured variable annuity with options for guaranteed growth and income along with death benefits, and Lincoln Investor Advantage, a lower cost, investment-only variable annuity. Both include “core” features such as living benefits, death benefit and i4Life (a patented income distribution method that, in nonqualified accounts, returns some nontaxable principal along with some taxable gains, and keeps an account value available for withdrawals if desired).
The products should work well with the larger accounts and multigenerational accounts that RIAs tend to serve, Campbell said.
Looking for growth in all channels
In general, the company wants to grow its presence in all its channels, whether independent, wires, RIAs or others, he said. That includes insurance agents who may be single-licensed or dual-licensed. “We’ll work with both,” he said.
“We’re not predicting which channel will grow or shrink,” commented Tad Fifer, national sales manager for alternative channels. “But we do want to provide a great presence in each channel.”
AnnuityNews Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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